Apple's Departure from China: A Show or a Real Move?

Apple's Departure from China: A Show or a Real Move?Previously, state media had also urged China to prepare for Apple's potential departure. So, what is the relationship between Apple and the Chinese supply chain? Why is Apple determined to leave China? And how should China respond?Apple's cooperation with the Chinese supply chain has a long history, dating back to the birth of the first iPhone

Apple's Departure from China: A Show or a Real Move?

Apple's COO recently visited Chinese suppliers again and praised them highly, sparking heated discussions. However, during the transition from iPhone 15 to iPhone 16, the proportion of Chinese supply chain parts dropped to less than 2%! This phenomenon begs the question: is Apple's move just a publicity stunt?

Previously, state media had also urged China to prepare for Apple's potential departure. So, what is the relationship between Apple and the Chinese supply chain? Why is Apple determined to leave China? And how should China respond?

I. Mutual Achievement

Apple's cooperation with the Chinese supply chain has a long history, dating back to the birth of the first iPhone. The supply chain companies cooperating with Apple, such as BOE, BYD, Lens Technology, and Luxshare Precision, have become hot stocks in the A-share market.

Initially, Apple did not transfer all its supply chain to China due to the immaturity of Chinese factories and the lack of skilled workers. At first, Chinese workers were mainly engaged in simple repetitive labor, while Apple technicians were stationed at factories to assist in technological upgrades. This cooperative model reflects Apple's insightful vision and its determination to build a supply chain in China.

"Whoever has the supply chain, has the world!" Xiaomi, with its supply chain reform, rose from the ashes and became the world's third-largest smartphone maker. Apple's supply chain management approach is unique. For example, when Steve Jobs discovered that plastic screens were prone to scratches, Apple immediately organized Chinese factory workers to switch to glass screens, completing the task within days.

All equipment and software on Apple's production line come from Apple and are equipped with a team of resident engineers for real-time monitoring and technical support. Chinese factories have also demonstrated high efficiency and quality. For instance, Luxshare Precision has been manufacturing parts for several Apple product lines since 2009, no longer limited to simple assembly work.

It was precisely due to the rise of the Chinese supply chain that Apple was able to sell its self-built factories, entering a light asset model. However, as Apple's smartphone sales declined, the stock price of Foxconn's parent company Hon Hai Precision also plummeted, reflecting the mutually beneficial relationship between Apple and the Chinese supply chain: shared prosperity and shared adversity.

II. Leaving China

Although Apple and the Chinese supply chain have benefited from each other, Chinese companies rely heavily on Apple. If Apple were to leave China, it would result in immense losses for these companies. Currently, the Chinese supply chain has fully adapted to Apple's production requirements. Rebuilding a suitable supply chain in other countries would be extremely challenging.

However, Apple's investment in India is increasing, with plans to manufacture one-quarter of its global iPhone production in India, indicating its determination to leave China.

So, why is Apple insistent on leaving China?

First, rising labor costs are not the main reason. From 2016 to 2024, China's labor costs increased from less than 40 yuan to less than 90 yuan. During the same period, Apple's phone prices rose from over 5,000 yuan to over 12,000 yuan. Rising labor costs are not the primary driver behind Apple's departure.

Second, diversification, nearshore, and localization are trends in multinational company supply chain development. Apple has long established a deglobalization strategy, shifting component supplies towards US-based sourcing.

Furthermore, recent international instability and the US's plans to revitalize its manufacturing sector may also have pushed Apple to leave China.

Currently, Apple has not publicly disclosed the specific reasons for leaving China. However, its steps towards leaving China are already underway. It is not just a show; it's a real movement.

III. Choosing India

During the pandemic, Chinese factories were unable to operate, causing a sharp decline in production. This was a direct reason for Apple to shift some of its production to India. Foxconn, a key partner in Apple's assembly business, has also invested in setting up factories in India.

However, despite lower labor costs in India, it faces limitations compared to China. Apple has encountered many problems in India, such as issues with land ownership, religion, local government, and worker quality.

Although Apple is trying to replicate the experience of its Chinese factories in India, progress has not been smooth so far. There are significant differences in the national conditions of China and India, such as religion, population quality, social infrastructure, and culture.

Therefore, is there a possibility of Apple returning to China in the future? It's not impossible, but expectations should not be too high. Currently, the manufacturing trend is for multinational companies to relocate their production bases to countries like India and Vietnam.

IV. State Media Calls for "Diversified Layout"

The last time Apple showed signs of leaving China, state media warned Chinese factories to lay the groundwork early and explore diversified businesses.

A diversified layout can reduce risks, offer more options, and promote the development of existing businesses. If Apple's partner factories in China do not want to be overly dependent on Apple, they should diversify their development, having multiple businesses and multiple clients to avoid being led by Apple, a large customer.

O-Film Technology was once a giant in the Apple industry chain. However, due to its excessive reliance on Apple, it was eventually kicked out of the supply chain and experienced a plunge in its stock price, selling buildings, companies, and businesses.

However, O-Film Technology was reborn through diversification reform. It began to restructure its business, shifting from supplying Apple to producing cameras for Android phones. It has also developed new features, such as multi-camera capabilities and adaptation to 3D scenes. Moreover, O-Film Technology has entered the smart car industry.

O-Film Technology's story tells us that even without Apple, companies can find new directions for development through diversified layouts.

Although Apple is determined to leave China, China is not helpless. O-Film Technology has set an example for companies that are heavily reliant on Apple. In the future, we must learn lessons and prepare for diversification early. Even without Apple, businesses can still thrive!

References:

Xinhua News: Seven Years After Jobs' Departure: Apple's Compromise and "Betrayal"

People's Daily: Apple's Earnings Exceed Expectations, Future Plans Affect "Fruit Chain"

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